Friday, October 21, 2011

OSK Research cuts auto sector from neutral to underweight

KUALA LUMPUR: OSK Research has downgraded the auto sector from neutral to underweight following the impact from the severe floods in Thailand and it also trimmed the earnings for UMW and Tan Chong.

It said on Friday, Oct 21 the prolonged flood situation in Thailand's Ayutthaya and Pathumthani province has enforced an extended shut down until Oct 28.

'Autoparts production from the flood stricken areas accounts for 10% of the country's total production and we do not foresee this heavily impacting the industry over the mid-longer term given the availability of alternative suppliers in other areas not affected by the flood in Thailand,' it said.

OSK Research said over the longer term, it sees Malaysia benefiting on higher investments in the sector considering that Indonesia too is a natural disaster prone area.

'What is concerning to us is the possibly of seeing margin compression next year for automakers which are heavily relying on completely knocked down (CKD) imports from Thailand following the populist move to increase the minimum wage policy by the new ruling Government,' it said.

The research house trimmed earnings for UMW and Tan Chong by 11%-17% for FY12 and FY13 on expectations that CKD parts could increase by 10%-15% coupled by the depreciating ringgit versus the yen and US dollar.

OSK Research said it maintained its Sell and Fair Value recommendation.

'Noting that our larger caps are all Sells now; we downgrade our sector recommendation to Underweight from Neutral,' it said.

No comments:

Post a Comment